Fastenal (FAST) sees strong post-COVID prospects: Is the stock a buy?

The demand for services that involve minimal human interaction is on the rise as people continue to practice social distancing. Fastenal Co. (NASDAQ: FAST), a market-leading supplier of vending machines, seems to have benefited from the trend through its sales remain under pressures from muted end-market activity.

Riding the COVID Wind?

The Minnesota-based engineering company stayed unaffected by the pandemic to a large extent, thanks to the growing demand for vending systems as enterprises seek to ensure customers’ safety and cust costs. It has constantly expanded market value over the years and the stock reached a peak of $54.18 at the beginning of June. But the shares soon pulled back, offering a unique buying opportunity that long-term investors wouldn’t want to miss. However, experts’ cautious outlook — the weak target price warns of a further loss in the coming months — points to near-term risks.

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Read management/analysts’ comments on Fastenal’s Q1 earnings

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Meanwhile, the company managed to maintain good liquidity even during the slowdown, which would come in handy while executing its growth plans. Steps are being taken to boost the e-commerce platform to align the business with changing customer preferences. The fastener business is set to benefit from the resilient housing market that looks poised to grow further. Those tailwinds, supported by the company’s strong fundamentals, should help it emerge stronger from the pandemic.

Industrial Supply

Fastenal’s transition to a full-line industrial supplier is expected to have a positive effect on order volumes. Currently, there are more on-site locations than the company had a year earlier. The ongoing measures to streamline operations through cost-cutting and to improve the delivery system should catalyze margin growth going forward.

From Fastenal’s Q1 2021 earnings conference call:

“We have a strong cash position. We can move faster than anybody else as a result. And that positions us well. And history has told, being in environments like this, I believe it tips to scale towards Fastenal a bit on its ability to take market share because we will have inventory, we will have opportunities and abilities to move in the marketplace that some of our competitors won’t. And I’m primarily talking about a lot of the more local competitors as opposed to some of the national players.”

Sees Flat Q2 Sales

Profit rose 3.7% annually to $0.37 per share in the first quarter and came in line with the consensus estimates. The growth was driven by a similar increase in revenues to $1.4 billion, though the top-line missed analysts’ view. Interestingly, earnings had topped expectations in all the four quarters of fiscal 2020, after a long period of hits and misses. E-commerce sales were up 36% in the first quarter and represented more than a tenth of total revenues.  However, the management sees softness in performance as the fiscal year progresses and forecasts flat sales for the June quarter.

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Retail: Digital growth remains strong even as restrictions ease

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Currently trading above its 52-week average, Fastenal’s shares have gained about 31% in the past twelve months, mostly outperforming the broad market. It traded lower early Monday, after closing the previous session at $52.68.